HanesBrands Inc. reported sales in the third quarter excluding exited programs and the effect of changes in foreign exchange rates rose 2.6 percent. Highlights included global Champion net sales more than doubling over the previous quarter. U.S. Innerwear sales were up 8.4 percent over last year.

Hanesbrands said it delivered strong sales, operating profit and cash flow on improving business trends, despite continued market disruption from the COVID-19 pandemic.

Net sales for the third quarter ended September 26, 2020, were $1.81 billion compared with $1.87 billion a year ago. The company sold $179 million in personal protective garments globally. The year-ago quarter included net sales of $119 million from the now exited C9 Champion mass program and the DKNY intimate apparel license. Excluding the exited programs and the effect of changes in foreign exchange rates, total constant-currency net sales for third-quarter 2020 increased 2.6 percent.

Third-quarter GAAP operating profit decreased 35 percent to $175 million, and the quarter’s adjusted operating profit excluding actions decreased 9 percent to $227 million.

Third-quarter GAAP EPS decreased 43 percent to $0.29, and adjusted EPS excluding actions decreased 11 percent to $0.42. (See the Note on Reconciliation of Select GAAP Measures to Non-GAAP Measures later in this news release for additional discussion and details of actions, which include pandemic-related charges.)

“I want to thank our incredible team of more than 63,000 around the globe for their commitment and dedication during these challenging times,” said Hanes Chief Executive Officer Steve Bratspies. “I’m pleased with our third-quarter results as we saw significant improvements across our business and exceeded our expectations for sales, profits and cash flow from operations. We saw particularly strong performance in our U.S. Innerwear and global Champion businesses, and I’m encouraged by our momentum even as we continue to operate in a challenging environment.

“Hanesbrands has iconic brands, a strong balance sheet, global reach, a deep commitment to sustainability and a passionate team. We have tremendous opportunities ahead of us, and we are committed to delivering long-term growth. We are conducting an in-depth review of our business as we build our growth strategy. Parts of our strategy will begin to unfold in the fourth quarter, and I look forward to reporting on our progress in the months ahead.”

Callouts for Third-Quarter Results and Ongoing Operations

  • Momentum Across The Business: Apparel revenue trends improved sequentially in each business segment. Global sales of Champion grew nearly 130 percent over the previous quarter, and consumer demand remains strong.
  • Strong Cash Flow: The company delivered another strong cash flow quarter, generating $249 million of operating cash flow. The company expects to end the year with a higher-than-anticipated inventory of personal protective garments but continues to expect to generate positive operating cash flow in the second half and for the full year.
  • Digital Progress: For the third quarter, online sales increased nearly 70 percent on a rebased basis through company e-commerce websites, retailer websites, large internet pure-plays, and business-to-business customers.
  • Improved Liquidity: The company ended the third quarter with $2 billion of liquidity, up from $1.8 billion last quarter, while paying its regular dividend and reducing debt by approximately $130 million.
  • Sustainability Goals: In the quarter, Hanesbrands announced 2030 global sustainability goals, including addressing the use of plastics and sustainable raw materials in products and packaging and improving the lives of 10 million people through initiatives that focus on health, education and wellness. In addition, the company launched a new sustainability website, www.hbisustains.com, designed to increase transparency on key metrics, including diversity, human rights benchmarks and risk assessments for investors.
  • COVID-19-Related Uncertainty: The company continues to operate in a highly uncertain environment due to increasing concerns of COVID-19 and increased restrictions by governments around the world.

Third-Quarter 2020 Business Segment Summaries

›Innerwear Segment
U.S. Innerwear sales increased 8.4 percent, excluding protective garments, with growth in the basics and intimate apparel businesses. Overall, U.S. Innerwear sales increased 37 percent over the prior year driven by sales of protective garments, continued positive point-of-sale trends and inventory restocking. When the year-ago quarter is rebased to reflect the exit of the C9 Champion mass program and the DKNY intimate apparel license, sales increased 11.5 percent, excluding protective garments, and 41 percent overall.

›Activewear Segment
U.S. Activewear sales declined 41 percent, a significant improvement from the second quarter. When the year-ago quarter is rebased for the C9 Champion program exit, U.S Activewear sales declined 27 percent.

Excluding $103 million of C9 Champion sales in mass retail in the year-ago quarter, sales of the Champion brand, while down 27 percent over the prior year, showed an 85 percent increase over the second quarter, driven by strong point-of-sale trends and continued online growth.

The vast majority of these declines occurred in the segment’s sports apparel business, which was significantly impacted by COVID-related issues such as canceled sporting events and the closure of college bookstores.

›International Segment
 As reported, third-quarter International segment net sales declined 5 percent and operating profit declined 10 percent. On a constant currency basis, net sales decreased 7 percent and operating profit declined 12 percent.

Excluding sales of protective garments, core International sales declined 7 percent as compared to the prior year, marking a significant improvement from the 44 percent decline in the second quarter.

Year over year constant currency sales growth in the company’s Americas and Champion Europe businesses was more than offset by declines in the company’s European innerwear, Asia and Australia businesses, where COVID-19-related challenges continued to slow the retail recovery.

Fourth-Quarter 2020 Financial Guidance
The company’s outlook for the fourth quarter reflects continued uncertainty due to the COVID-19 pandemic and is based on the current business environment, including the recently implemented COVID-related restrictions in Europe, but does not reflect any potential impact to the consumer or operating environments should governments or businesses institute additional lockdowns and store closings.

For the fourth-quarter 2020, net sales are expected to be approximately $1.60 billion to $1.66 billion. Included in its sales outlook are approximately $50 million of protective garment sales and approximately $10 million of foreign exchange benefit.

As reported last quarter, the company continues to face second-half 2020 profitability headwinds. Negative manufacturing variances and higher SG&A expenses are expected to pressure both gross and operating margins in the fourth quarter. GAAP operating profit is expected to range from $154 million to $174 million. Adjusted operating profit is expected to range from $160 million to $180 million. GAAP earnings per share are expected to range from $0.24 to $0.29 and adjusted EPS is expected to range from $0.25 to $0.30.

For the fourth-quarter 2020, the midpoint of guidance represents a net sales decline of 7 percent compared with 2019. When comparing the midpoint of fourth-quarter 2020 guidance to 2019 results rebased to account for the exits of the C9 Champion and DKNY programs, net sales are expected to decline approximately 2 percent, GAAP operating profit and adjusted operating profits are expected to decline approximately 33 percent, and 30 percent, respectively, and GAAP and adjusted EPS are expected to decline approximately 47 percent and 39 percent respectively.

Full-year 2020 net cash from operations is expected to be $300 million to $400 million, which includes the impact of the higher-than-anticipated protective garment inventory. Based on year-to-date cash flow, this implies fourth-quarter net cash from operations of approximately $70 million to $170 million.

The fiscal year ending January 2, 2021, includes a 53rd week in the fourth quarter, and the company’s net sales outlook includes approximately $40 million from this week.

The tax rate for the quarter was 17.6 percent. The company expects its fourth-quarter tax rate to be approximately 17.5 percent.

Photo courtesy Hanes Brands/Champion